In her brilliant The People: The Rise and Fall of the Working Class Selina Todd writes:
In 1949 Mass Observation interviewed 2040 people across England about their income and speding patterns. The investigators discovered widespread satisfaction, especially among manual workers and their families: " a third say that they have no particular wants beyond those thay they can afford."
I very much doubt that so high a fraction would say that today, despite the fact that real wages have shot up since then: a male factory worker back then was doing well to get £7 a week, implying that wages have risen by around 80 per cent since then in real terms.
This poses the question. Why was it that in the 1940s there was satisfaction with incomes whereas today we have a cost of living crisis when real wages are far higher? Here are some possibilities.
First, real wages had risen a lot between the 30s and late 40s. This meant that many people felt well off simply because they had not yet become habituated to their higher incomes. By contrast, real wages today are lower than a few years ago. As Adam Smith said:
It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state. The progressive state is in reality the cheerful and the hearty state to all the different orders of the society. The stationary is dull; the declining melancholy.
Secondly, there are now more potentially adverse comparisons a worker can make between his living standards and his neighbours. In the 40s, almost no worker had a car, TV or took a foreign holiday so workers who didn't have these didn't feel they were missing anything. Today, our neighbours spend more so we feel dissatisfied if we don't keep up; peer effects matter for spending, probably because we feel as if we are missing out if we don't keep up with the Joneses.
This process might be exacerbated by television. There's some evidence that watching TV can make us unhappy in part because adverts and the sight of glamorous lifestyles can increase aspirations and discontent. Back in the 40s, this wasn't a problem.
Thirdly, economic growth doesn't consist merely (or even mainly) of producing more of the same stuff. It consists in an increased proliferation of goods. There are millions of products - from olive oil to iPads - in the UK economy today that didn't exist in the 40s. As Eric Beinhocker pointed out in The Origin of Wealth, the biggest difference between a rich and poor socieity isn't the level of incomes, but the number of different goods.
This profusion, though, has a drawback - it increases our opportunity costs; £10 spent at Nandos is £10 less to spend topping up your phone. Because of this, as Jan Sokolowsky and Katherine Guthrie have shown, more choice can mean less happiness.
In saying all this I don't mean to deny that there is a cost of living crisis. What I am doing though, is challenging sceptics about the Easterlin paradox such as Diane Coyle. She's said that the paradox is based on a statistical misunderstanding; GDP is unbounded whereas happiness ranges on a 1-10 scale, so the two will look unrelated. As a statistical point, this is correct. But even so, there's some historical evidence, and psychological mechanisms, which suggest the paradox is a real one.